MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Chapter 16.A, Problem 15SQ
To determine
The Keynesian approach to the economic system.
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In the Keynesian model, is aggregate expenditure (AE) exceeds total production an unintended _________ will occur and business will __________.
a) inventory reduction; increase production
b) inventory reduction; decrease production
c) inventory reduction; not change production
d) inventory accumulation; decrease production
e) inventory accumulation; increase production
A recessionary gap exists when the macro economy is in equilibrium at less than the potential output of the the economy because aggregate demand is insufficient to fully employ all of society' s resources. In other words, the equilibrium (AD = AS) occurs to the left of the vertical long-run supply curve. At this point, potential output is reached ( full employment) and if any unemployment occurs, then it is due to structural or frictional; that is, the economy is at its natural rate of employment.
True
False
A recessionary gap exists when the macro economy is in equilibrium at less than the potential output of the the economy because aggregate demand is insufficient to fully employ all of society' s resources. In other words, the equilibrium (AD = AS) occurs to the left of the vertical long-run supply curve. At this point, potential output is reached ( full employment) and if any unemployment occurs, then it is due to structural or frictional; that is, the economy is at its natural rate of employment.
True or falses
Chapter 16 Solutions
MACROECONOMICS FOR TODAY
Ch. 16.3 - Prob. 1.1YTECh. 16.3 - Prob. 2.1YTECh. 16.3 - Prob. 2.2YTECh. 16.A - Prob. 1SQPCh. 16.A - Prob. 2SQPCh. 16.A - Prob. 3SQPCh. 16.A - Prob. 4SQPCh. 16.A - Prob. 1SQCh. 16.A - Prob. 2SQCh. 16.A - Prob. 3SQ
Ch. 16.A - Prob. 4SQCh. 16.A - Prob. 5SQCh. 16.A - Prob. 6SQCh. 16.A - Prob. 7SQCh. 16.A - Prob. 8SQCh. 16.A - Prob. 9SQCh. 16.A - Prob. 10SQCh. 16.A - Prob. 11SQCh. 16.A - Prob. 12SQCh. 16.A - Prob. 13SQCh. 16.A - Prob. 14SQCh. 16.A - Prob. 15SQCh. 16 - Prob. 1SQPCh. 16 - Prob. 2SQPCh. 16 - Prob. 3SQPCh. 16 - Prob. 4SQPCh. 16 - Prob. 5SQPCh. 16 - Prob. 6SQPCh. 16 - Prob. 7SQPCh. 16 - Prob. 8SQPCh. 16 - Prob. 9SQPCh. 16 - Prob. 10SQPCh. 16 - Prob. 11SQPCh. 16 - Prob. 12SQPCh. 16 - Prob. 1SQCh. 16 - Prob. 2SQCh. 16 - Prob. 3SQCh. 16 - Prob. 4SQCh. 16 - Prob. 5SQCh. 16 - Prob. 6SQCh. 16 - Prob. 7SQCh. 16 - Prob. 8SQCh. 16 - Prob. 9SQCh. 16 - Prob. 10SQCh. 16 - Prob. 11SQCh. 16 - Prob. 12SQCh. 16 - Prob. 13SQCh. 16 - Prob. 14SQCh. 16 - Prob. 15SQCh. 16 - Prob. 16SQCh. 16 - Prob. 17SQCh. 16 - Prob. 18SQCh. 16 - Prob. 19SQCh. 16 - Prob. 20SQ
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- Which of the following statements best represents the relationship between Keynesian and Neoclassical perspectives? Okeynesian and neoclassical perspectives both focus on long-run growth OKeynesian ideas work best in the short-run and neoclassical ideas work best in the long-run OKeynesian ideas work best in the long-run and neoclassical ideas work best in the short-run OKeynesian ideas focus on the natural rate of unemployment, while neoclassical ideas focus on cyclical unemploymentarrow_forwardWhich of the following describes the use of Keynesian macroeconomic policy to resolve an inflationary gap problem in the economy? a) Unemployment, resulting from the short-run product markets equilibrium being below Long-run Aggregate Supply (LRAS), causes wages to decline, which increases short-run Aggregate Supply (AS), until long-run equilibrium is attained at full employment level of income and a lower price level. b) Government spending is increased, increasing Aggregate Demand (AD) to a level sufficient to attain long-run equilibrium at full employment level of income and a higher price level. c) In attempting to produce beyond the economy's natural level of GDP, producers bid up wages and prices of other resources, causing the short-run Aggregate Supply (AS) to decrease to the point where long-run equilibrium is restored. d) Taxes are increased reducing Aggregate Demand (AD) to a level consistent with full employment.arrow_forward(a) As a response to the recent COVID-19 outbreak, the Commonwealth Government put in place lockdown restrictions. Using the dynamic AD-AS framework, analyse and demonstrate the impact of the COVID-19 pandemic on the level of output (or real GDP), unemployment, and inflation. (b) In response to the COVID-19 pandemic, in March 2020 the Commonwealth Government announced a fiscal stimulus which included income support for workers and businesses hit by the pandemic. Using the same dynamic AD-AS framework used in part (a), explain and illustrate the effect of the fiscal stimulus on the level of output (or real GDP), unemployment, and inflation. (c) Using the same dynamic AD-AS framework used in part (b), show what the impact of the fiscal stimulus would have been if Australia had no interactions in trade or finance with other economies (i.e. if Australia was a closed economy).arrow_forward
- Give me all answers I'll give you a Upvot? 1)Use the Keynesian cross diagram to analyze the effects of the following on real output. (a) Decrease in government purchases (b) Increase in housing prices (c) Increase in taxes (d) Decrease in stock pricesarrow_forwardWhen in macroeconomics an economy ‘overheats’ it is observed that aggregate demand exceeds national income at the full employment output level. Within a ‘Keynesian cross’ framework this overheating is described as which of the following: (a) A Goldilocks effect; (b) A hyperinflation; (c) A recessionary gap; (d) An inflationary gap Please illustrate the correct answer via a diagram.arrow_forwardConsider starting from full-employment equilibrium in our Aggregate Demand and Supply model (with flexible wages and worker misperception of price level changes in the short run), at Po, QN on the output market graph below. Then we get an increase in Aggregate Demand from Agg Do to Agg D1. Group of answer choices a) In the long run, P will increase further above P1 as workers finally get a full cost of living raise. b) at P1, Q1, we are in a recessionary gap. c) In the long run, P and Q will return to their original levels when workers perceive the decrease in P. d) In the long run Q will increase further above Q1 as employment increases (due to workers getting wage increases). e) None of the other options.arrow_forward
- Keynesian aggregate demand model uses income... a) ICOR (Incremental Capital-Output Ratio) b) Aggregate demand c) Multiplier d) All answers are correctarrow_forward7) The Keynesian portion of the short-run aggregate supply (SRAS) curve implies: a) an upward slope. b) a downward slope c) flexible prices and wages d) the price level does not change.arrow_forwardRecall the Keynesian Cross is the foundation to derive the IS curve. Suppose we have a simple closed economy. The cross of planned expenditure (PE) and the equilibrium condition (PE = Y) of this economy shows the equilibrium level of national output in the goods market. Here we assume the consumption (C) is a function of • C = 120 + 0.75(Y-T); Here the marginal propensity to consume (MPC) equals 0.75. Planned investment (I) is 200; government purchases (G) and taxes (T) are both 400. Use the conditions given, finish the following questions. (1) What is the equilibrium level of national income? Show step-by-step solution. Tip: recall the definition of planned expenditure (PE). At equilibrium, actual expenditure (Y) equals planned expenditure. (2) If government expenditures increase to 500, ceteris paribus (other things being equal), what is the new equilibrium income? What is the multiplier for government purchases? How much is the change of national income from the increase in…arrow_forward
- Assume the economy is in short-run equilibrium and has an upward-sloping AS curve. Now assume that the government significantly increases spending (G). Choose the answer that describes how the economy responds. The AD curve shifts to the right and causes the prices of goods and services O A) to rise, which in turn shifts the AS curve vertically upwards. By the end of the adjustment process the economy is at a new equilibrium with higher prices, but the change in output is uncertain. Depending on the relative size of the shifts in the AD and AS curve, GDP at the new equilibrium may be higher or lower that at the initial equilibrium. The AE curve shifts vertically upward by the increase in G, the AD curve B) shifts to the right, and prices start to rise. As prices rise the AE curve shifts vertically down, AD falls along the new curve, output rises along the AS curve, and in the new equibrium the economy's GDP is higher. Households increase their desired spending, and aggregate demand…arrow_forwardQ.1.12 Which one of the following statements about the simple Keynesian macroeconomic model is correct? (1) Supply creates its own demand; (2) Equilibrium can occur at any level of income, not only the full- employment level; (3) The model can be used to study inflation; (4) Wages and prices are variable.arrow_forwardConsider the aggregate supply-aggregate demand (AD-AS) model that we saw in class. Assume that prices are fixed in the short run and are fully flexible in the long run. The initial full-employment level of output is y-900 and the initial price level is p= 100: The aggregate demand curve is given by Y=1500 –6P: Scenario 2, short run: A major earthquake destroys a part of the economy's capital stock and reduces the full-employment level of output shifts to y = 880: In the short run, the output is and the price level is Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%".arrow_forward
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